Blog LenderLaw Watch March 13, 2017

Massachusetts Appellate Division: A Debt Buyer is a Debt Collector Under MA Law

On February 15, 2017 the Massachusetts Appellate Division of the District Court Department found in Midland Funding, LLC v. Juba, No. 16-ADMS-40011, that a debt buyer violated the Massachusetts Debt Collection Practices Act (MDCPA) and the Massachusetts Consumer Protection Act (Chapter 93A) by attempting to collect on a consumer debt it had purchased without being a licensed debt collector in the Commonwealth of Massachusetts.

The case involved a debt buyer, Midland Funding, LLC, that attempted to collect a debt it had purchased by initiating a lawsuit against the plaintiff.  The plaintiff counterclaimed, alleging violations of the MDCPA and Chapter 93A, as well as the federal Fair Debt Collection Practices Act (FDCPA), claiming that the defendant was a debt collector and therefore subject to the licensing requirements set forth by the Commonwealth of Massachusetts.  The defendant argued that it was merely a passive holder of debt and not subject to the Massachusetts licensing requirements.

The court held for the plaintiff, reasoning that, “[i]n this case, Midland exists only to own defaulted debt and, presumably to receive money collected on those obligations.”  The court noted that, despite Midland’s agreement with a separate entity to “handle the majority of the direct collection efforts, Midland regularly participates indirectly” in that entity’s efforts to “collect Midland-owned consumer debt.”  As a result, the court found that “Midland was required to submit to licensure requirements and corresponding oversight and supervision” mandated by Massachusetts laws and regulations on debt collection activities.  Midland’s failure to do so was, according to the court, a violation of the MDCPA and FDCPA.  The court further found that bringing suit through counsel without the required license was a per se violation of Chapter 93A.  This was true, the court held, despite the fact that the Massachusetts Division of Banks had previously determined that Midland did not have to be licensed.

The opinion in Juba reminds debt buyers doing business in Massachusetts that they must evaluate the applicability of all statutes and regulations potentially covering their activities.  It also serves as a warning to debt buyers collecting their own debts in the state:  courts are not bound by opinions of the Division of Banks and may very well find a violation of various bank regulations and consumer protection statutes even if the Division of Banks has indicated otherwise.